The below is all about investment flow into or out of the US. But before we start, RGE Monitor comments that this is the most significant effect of the worlwide financial crisist for emerging nations. Aggressive capital inflows there have reversed – aggressively.
Today’s TIC data …
Posted on Monday, March 16th, 2009
[TIC = Treasury International Capital. It is data released by the US Treasury on international purchases and sales of US assets] (Otherwise known as flow of funds, I think) …
Long-term (investment) inflows in January were weak — with net sales of long-term assets by both private and official investors. But that isn’t news. Setting December (when foreign private investors bought a bunch of US corporate bonds) aside, foreign investors haven’t been buying long-term US assets since the crisis hit.
The swing came from two sources:
1) US investors bought a bunch of foreign bonds. That is a change. US investors had been net sellers of foreign bonds and equities through out the fall.
2) Banks stopped piling into US assets. … In January, credit conditions eased a bit, and private investors reduced their t-bill holds by $44 billion and the banks reduced their (net) dollar deposits by $119 billion. …
China is still buying Treasuries. It bought $12.2 billion in January, (but there) has been an enormous contraction in long-term flows, with a corresponding increase in the United States reliance on short-term financing. And also a shift away from risk assets. One striking fact is that foreign investors now consider Agencies to be a “risky” asset.
(Also) the overall result of the crisis (has been) a large contraction in all flows. The impact of the collapse in foreign demand for US risk assets (corporate bonds, equities) has been offset by a collapse in US demand for foreign assets.
(And this from Eric Jansen :)
Buried in the details of yesterday’s quarterly Fed Flow of Funds report is the collapse of the private credit market in Q4 2008 and attempts by the Federal Reserve and Treasury Department to compensate for the loss with government credit as the world’s largest lender of last resort.
… Tax receipts in 2009 are vastly over-estimated while demands on the federal government to finance both fiscal stimulus and to act as a long term lender of last resort are vastly underestimated. … The most likely trigger (causing Treasuries to fall) is a Tax Receipt Epiphany that leads to a Fiscal Deficit Shock and sudden loss of confidence in US sovereign credit quality. … We explore the fiscal deficit shock idea in more detail in Flow of Funds in a Transformational Depression ($ubscription)